Beige Book Report: Kansas City
May 20, 1970
Consensus Based on Discussions with Members of the Board of Directors. Perhaps the most pervasive comments revolve about construction industry wage settlements. The extremely high national rate of wage increase is mirrored in the District, but of more significance, current and emerging wage demands will probably give a new lift to the national spiral. Construction is at a standstill in some areas of the District, as new wage bargaining proceeds. Excessive increases in construction costs are an important part of the reason for the reduced volume of new construction awards, which will show up in reduced construction activity six months or so hence. Even now, it is reported, there is a virtual absence of small construction projects of $750,000 or less.
The magnitude of wage increases in construction, and in other industries as well, is causing many to doubt the validity of attempting to bring wage-cost inflation under control by monetary and fiscal policies. There is a strong belief that stabilization goals can be accomplished only if the unbridled power of labor unions is curbed. In this connection, it was noted that some local memberships in their push for large gains have effectively overthrown the guidance of national leaders. It was interesting, too, to hear that the top construction company in the United States last year is a nonunion firm.
Retail sales are reported in the range of from firm to down by varying amounts. Where sales were reported weak, it was indicated that the public is deeply concerned about the prospect of recession.
Despite excellent production prospects, producers of farm crops are discouraged by low prices for many of these crops. Bankers in the High Plains report that increasing numbers of farmers, particularly wheat farmers, are quitting because of low prices and restricted average allotment programs. The attrition appears to be substantially higher than the average for other recent years caused by the changing structure of the industry. The livestock sector continues to remain relatively favorable. However, the impact of higher livestock prices is expected to be offset by increasing costs, resulting in little change in net farm income measured in current dollars. Consequently, net farm income measured in real terms is likely to be down.
The 8-percent increase in net farm income in 1969, combined with efforts of farm producers to increase efficiency by going to larger equipment and other technological improvements, has caused purchases by farmers to increase. Farm machinery dealers report sales of farm equipment to be unusually good. They are fearful, however, that to a considerable extent current sales are being made at the expense of normal future sales. Conversation with farm purchasers indicates that they are buying now because they expect equipment prices to rise substantially as new union contracts are negotiated. Farm implement people expect Walter Reuther's death to make bargaining in the farm machinery industry more difficult.
It is apparent that most Board members do not believe that a recession will be an acceptable route to the goal of price stability. While they probably would not argue that the economy is in recession, the course of developments and the sharp April rise in unemployment tend to strengthen the view that the economy is headed in that direction.
Banker members of the Board are concerned with the continuing effort to limit overall credit growth by restricting growth in the banking system. They believe that this already has gone too far in squeezing bank liquidity. Moreover, they argue, monetary policy is forcing too much banking outside of banks and this is potentially dangerous. The resort to commercial paper financing by business firms is cited as an obvious example. The removal of interest rate ceilings on large CDs would be a step in rectifying some of the current difficulties and potential problems in this regard.